Is the commodities boom over?

[rederob]

Looks like they have already stopped rederob, several of Norilsk mines shutting down and been sold off:

http://www.bloomberg.com/apps/news?pid=20601081&sid=aRTcug1VJ7tA&refer=australia

Cawse is small fry. Norilsk is delivering huge quantities to LME Rotterdam via Dudinka. Until the Norilsk mine itself eases output, nickel inventories will keep climbing.

 

[dovetree]

The real reason commodities boomed and why it was over sometime ago.

Read the testimony by hedge fund manager Michael Masters to the US senate commitee on finance.


hsgac.senate.gov/public/_files/052008Masters.pdf

This is why oil and other comm. prices have risen. and it is doubtful they will have such a rise again

 

[IFocus]

Got told last week RIO have halted all projects in development around a 1000 project jobs to go

Telfer dumping 400 jobs

Rumors

BHP Ravensthorpe to go into mothball

Niffty copper to close

 

[Whiskers]

The real reason commodities boomed and why it was over sometime ago.

Read the testimony by hedge fund manager Michael Masters to the US senate commitee on finance.


hsgac.senate.gov/public/_files/052008Masters.pdf

This is why oil and other comm. prices have risen. and it is doubtful they will have such a rise again

Nice point dovetree.

Had some extraudinary arguements with some insisting that futures can't/don't manipulate prices.

So simple to reregulate the whole futures industry but while economically powerful people with vested interests in the US control the legislature it's going to be hard work.

Not sure that I agree that (some) commodity prices won't boom again though. For example, high oil flows on th higher costs for almost everything else atm, efectively eroding growth and quashing a lot of demand.

But if oil goes sub 40 again as I expect, that will contribute to lessening the risk of both inflation and recession in the short term by effectively reducing the cost base of almost everything else so basic/staple products at least are much more affordable.

I also think the futures racket in association with other derivitives contributed significantly to the credit crisis and share market crashes.

However, with many commodities nearing longer term lows it looks like the futures racket cycle has about gone full circle.

NOW is the time for the US to take decisive action in making changes as some other countries have so the rackets would be snuffed out and we could return to something like true supply and demand conditions in which the world will still grow and consume raw materials.

In the medium term I expect to see good rebounds in some commodities.

Summary of Prior Testimony
One of the fundamental purposes of futures contracts is to provide price discovery in the ―cash‖ or ―spot‖ markets. Those selling or buying commodities in the ―spot‖ markets rely on futures prices to judge amounts to charge or pay for the delivery of a commodity.1 Since their creation in the agricultural context decades ago, it has been widely understood that, unless properly regulated, futures markets are easily subject to distorting the economic fundamentals of price discovery (i.e., cause the paying of unnecessarily higher or lower prices) through excessive speculation, fraud, or manipulation.

The Commodity Exchange Act (―CEA‖) has long been judged to prevent those abuses. Accordingly, prior to the hasty and last minute passage of the Commodity Futures Modernization Act of 2000 (―CFMA‖), ―all futures activity [was] confined by law (and eventually to criminal activity) to [CFTC regulated] exchanges alone.‖2 At the behest of Enron, the CFMA authorized the ―stunning‖ change to the CEA to allow the option of trading energy commodities on deregulated ―exempt commercial markets,‖ i.e., exchanges exempt from CFTC, or any other federal or state, oversight, thereby rejecting the contrary 1999 advice of the President‘s Working Group on Financial Markets. Id. This is called ―the Enron Loophole.‖

Two prominent and detailed bipartisan studies of the Permanent Subcommittee on Investigations (―SPI‖) staff represent what is now conventional wisdom: hedge funds, large banks and energy companies, and wealthy individuals have used ―exempt commercial energy futures markets‖ to drive up needlessly the price of energy commodities over what economic fundamentals dictate, adding, for example, what the SPI estimated to be @ $20-$30 per barrel to the price of a barrel of crude oil at a time when that commodity had reached a then record high of $77. The conclusion that speculation has added a large premium to energy products has been corroborated by many experts, including most recently and most prominently, George Soros.3

The SPI staff and others have identified the Intercontinental Exchange (―ICE‖) of Atlanta, Georgia as an unregulated facility upon which considerable exempt energy futures trading is done. For purposes of facilitating exempt natural gas futures, ICE is deemed a U.S. ―exempt commercial market‖ under the Enron Loophole. For purposes of its facilitating U.S. WTI crude oil futures, the CFTC, by informal staff action, deems ICE to be a U.K. entity not subject to direct CFTC regulation even though ICE maintains U.S. headquarters and trading infrastructure, facilitating, inter alia, @ 30% of trades in U.S. WTI futures. That staff informal action may be terminated instantly by the CFTC under existing law.4

Virtually all parties now agree the Enron Loophole must be repealed. The simplest way to repeal would be to add two words to the Act‘s definition of ―exempt commodity‖ so it reads: an exempt commodity does ―not include an agriculture or energy commodity;‖ and two words to 7 U.S.C. § 7 (e) to make clear that ―agricultural and energy commodities‖ must trade on regulated markets. An ―energy commodity‖ definition must be then be added to include crude oil, natural gas, heating oil, gasoline, heating oil, metals, etc.5 In the absence of quick CFTC action permitted by law, the statute should also be amended to forbid an exchange from being deemed an unregulated foreign entity if its trading affiliate or trading infrastructure is in the U.S.; or if it trades a U.S. delivered contract within the U.S. that significantly affects price discovery.

http://commerce.senate.gov/public/_files/IMGJune3Testimony0.pdf

 

[rederob]

But if oil goes sub 40 again as I expect, that will contribute to lessening the risk of both inflation and recession in the short term by effectively reducing the cost base of almost everything else so basic/staple products at least are much more affordable.

If oil gets to $40 then we are in a depression, so basic staples won't be affordable because most people won't have the money to pay.
If oil goes below $50 very few producers will stay in business.
At $60 oil will not provide enough revenue to carry out exploration, let alone the essential maintenance that is way overdue on old infrastructure.
OPEC members want oil closer to $100 and will keep curbing output to get it back there.
Don't forget that despite the recession we are experiencing, global demand forecasts anticipate an increase this year and next. While I anticipate further downward revisions as the recession bites, the fact remains that consumption remains high and demand will quickly spike up once the recession is over.

What is most important to understand at this juncture is that circumstances are NOT normal. Many commodity prices have fallen below cost of production leading to a range of severe circumstances:
Exploration is cut back or stopped
Cut off grades are increased
Project economics are no longer favourable
Project financing is difficult
Expansion projects are delayed
Marginal producers are closing or going into care and maintenance.

The above circumstances may lead to inventory declines rather than rebuilds in the near to medium term. In the longer term it will mean that economic recovery will be met with severe shortages - and we know what happens thereafter.

 

[amory]

the way the Hangseng is going bellyup, there could be some doubt about resurgence of our mining boom. Oil is at the mercy of the elements, but wouldn't it be good if Gold at least, could find recognition it deserves. instead of having to flounder about aimlessly amidst all these battered commodities.

 

[Reealjrd]

Hello friends,

The commodity boom is not over you will soon see agin some nice movements in commodity market. Here is some news for the day for commodities.

LME metals edge lower after enormous overnight gain
Shanghai copper and zinc edge up after LME rally
Tin bounces approximately 50 percent in less than a week
Markets may have bottomed, risk opening to favour longs
Oct 30 - Shanghai copper and zinc open at their 4 pct upside limits on Thursday, chasing a huge rally in London that axiom copper jump almost 13 pct after sheer losses in the precedent two weeks.
However, London futures edge lower, snapping their best ever string of gains seeing as mid-September on profit taking, in spite of an increase in the EUR.
The greenback posted its major one-day fall in 23 years on Wednesday, as the Fed delivered an predictable 50 point rate cut and China's central bank also cut rates, raising hope that order would not sluggish as much as feared.
"Today's cascades are not enormously significant. The marketplace was vault to rise as it was extremely oversold, it was presently the timing that was in uncertainty," a metals merchant said in Singapore.
"Direction will be single-minded by equities, the dollar and all the customary economic marketplace factors that have been lashing this. However, the risk at present seems to favour being long rather than short. However we are not putting on at all big directional position."
LME copper for release in three months chop down 1.2 pct, or $55, to $4,600 a tone by 0355 GMT, bountiful up a few of Wednesday's $525 increase.
Prices have risen around 20 percent so far this week and if the market can maintain those gains, copper is set for its biggest weekly rise since September 1979. Despite that, for the month prices are down 28 percent, which would be their biggest fall in at least three decades.
"The down shift has to foot out at some point. We have seen a few real lows veteran our foot for copper is in the region of $3,500 to $4, 000," Said by Edward Meir MF Global analyst.
On Monday, price dished to $3,590, their weakest additional than three years.
"The turn down may have broken and we are set for a phase of sideways trade in 2009, much as we axiom at the beginning of the century," Edward Meir said.
Copper futures in Shanghai rose by their 4 pct threshold to 33,100 yuan ($4,838) and zinc top out at its edge, at 9,515 yuan in early on trade after London zinc jump approximately 10 pct.
LME tin cut down $25, or 0.2 pct, to $15,200. Tin price are up approximately 50 pct since plummeting to a 21-month low of $10,300 on Oct. 24.
"Tin is doing very well. Stocks are dropping, and the market is very dependent on a single producer, Indonesia, which has said it will cut production when prices fall below $15,000," Meir said.
In contrast to most other metals, tin stocks have fallen steadily during 2008. LME inventories of the metal, which is seeing rising demand as a replacement for lead in electrical solder, have dropped 75 percent to 3,815 tonnes since August last year.
By contract, copper stocks have risen 78 percent in the same period. Metals prices are 0355 GMT.
Metal Last Change Pct Move End 2007 Pct chg 08
LME Cu 4600.00 -55.00 -1.15 6670.00 -31.00
SHFE Cu* 33100.00 1280.00 +4.02 56880.00 -41.81
LME Alum 2125.00 -26.00 -1.21 2403.00 -11.57
COMEX Cu** 207.15 0.00 +0.00 304.10 -31.88 LME Zinc 1210.00 -50.00 -3.97 2370.00 -48.95
SHFE Zinc 9490.00 265.00 +2.87 18950.00 -49.92
LME Nickel 13250.00 -390.00 -2.86 26350.00 -49.72
LME Lead 1530.00 -50.00 -3.16 2550.00 -40.00
LME Tin 15200.00 -25.00 -0.16 16400.00 -7.32
LME/Shanghai arb^ 3454 Dollar/yuan 6.8365 \ 6.8368 **
1st contract month for COMEX copper
3rd contact month for SHFE aluminium, copper and zinc
LME 3-m copper in yuan, including 17 pct VAT, minus SHFE third month

If any mistake please bear. It is commodity market any thing can happen.

Happy trading.

 

[Sean K]

Mining industry to freeze, if not fozen already, but this may be a once in a life time buying opportunity.....

I've edited this article to briefen it. For the full story hit the heading..


Mining industry freezes capital expenditure
Sarah-Jane Tasker | November 01, 2008

Analysts say $US50 billion ($75 billion) in planned expenditure is at risk of being delayed next year, as miners bunker down to survive the global financial turmoil.

The Credit Suisse UK mining team has estimated that about $US50 billion of the $US75 billion of mining capital expenditure planned for next year could be delayed, and that a further $US150 billion scheduled for 2010-12 could be delayed.

This represents about 66 per cent of next year's spending plans and may materially delay production of some 300 million tonnes of iron ore (35 per cent of current seaborne market), 5 million tonnes of copper (29 per cent), 10 million tonnes of aluminium (25 per cent) and more than 1 million ounces of platinum (14 per cent).

Mr Gray said this could plant the seeds for the next bull market, especially given that the recent five-year bull market did not see large-scale capacity additions, with the exception of iron ore.

The most affected miners are likely to be those with excessive debt, such as Xstrata, and the juniors, which have limited access to financing.

Industry experts have argued that many of the emerging iron ore projects in Western Australia, which have been bidding to grow at a frenzied rate to cash in on China's increasing need, may not eventuate.

Africa, which was once a new frontier, has effectively been wiped out.

With the juniors now desperate for cash, there are potentially some great buys in the market.

"This is why the sell-off in the junior miners is likely to be a one in 100-year buying opportunity for the brave at heart," he added. "I have many of the best copper juniors in DR Congo trading at just 5c in the dollar ....

 

[noirua]

Mining industry to freeze, if not fozen already, but this may be a once in a life time buying opportunity.....

I've edited this article to briefen it. For the full story hit the heading..


Mining industry freezes capital expenditure
Sarah-Jane Tasker | November 01, 2008

Analysts say $US50 billion ($75 billion) in planned expenditure is at risk of being delayed next year, as miners bunker down to survive the global financial turmoil.

The Credit Suisse UK mining team has estimated that about $US50 billion of the $US75 billion of mining capital expenditure planned for next year could be delayed, and that a further $US150 billion scheduled for 2010-12 could be delayed.

This represents about 66 per cent of next year's spending plans and may materially delay production of some 300 million tonnes of iron ore (35 per cent of current seaborne market), 5 million tonnes of copper (29 per cent), 10 million tonnes of aluminium (25 per cent) and more than 1 million ounces of platinum (14 per cent).

Mr Gray said this could plant the seeds for the next bull market, especially given that the recent five-year bull market did not see large-scale capacity additions, with the exception of iron ore.

The most affected miners are likely to be those with excessive debt, such as Xstrata, and the juniors, which have limited access to financing.

Industry experts have argued that many of the emerging iron ore projects in Western Australia, which have been bidding to grow at a frenzied rate to cash in on China's increasing need, may not eventuate.

Africa, which was once a new frontier, has effectively been wiped out.

With the juniors now desperate for cash, there are potentially some great buys in the market.

"This is why the sell-off in the junior miners is likely to be a one in 100-year buying opportunity for the brave at heart," he added. "I have many of the best copper juniors in DR Congo trading at just 5c in the dollar ....

Sums most of it up really. Now it's the time for miners with lots of cash, and check out those who have JV's that include taking coal, iron ore etc., for up to 30 years at market prices.
Some stocks are virtually down and out, and the big boys will take the best for not much.

 

[Sean K]

Crikey, and BHP now delaying OD expansion.

BHP delays opening of world's biggest pit
Matt Chambers | November 01, 2008

BHP Billiton has pushed back the start date for its giant Olympic Dam copper and uranium expansion until at least 2015.

This was to include digging the world's biggest open-pit mine.

In a long-awaited presentation, the mining giant was tight-lipped on development costs, which have been tipped by analysts to be $15 billion, and indicated it would not reveal them until the project was approved, in 2010 at the earliest.

BHP's ambitious plans for the deposit will see it ramp up in three major stages over 10 or 11 years, with the planned, huge pit eventually eating into the existing underground mine and mill around 2025.

 

[Whiskers]

The Credit Suisse UK mining team has estimated that about $US50 billion of the $US75 billion of mining capital expenditure planned for next year could be delayed, and that a further $US150 billion scheduled for 2010-12 could be delayed.

Yes, there has certainly been a lot of belt tightening and project mothballing lately which will slow down new production somewhat... but I'm seeing a few with little or no debt and or good cash balances that are planning to carry on as usual.

That's going to be the key from an investment/trading perspective... find the well heeled ones that are ready or can get ready to go pretty quickly.

But having achnowledged some capital raising problems, I'm not sure that demand has fallen so much as maybe an over correction of prices with the hedge funds cashing out.

Some metals such as copper, even zinc and lead are not at historically high stockpile levels, so I am expecting them to rise to and maintain reasonable prices in the near term.

 

[rederob]

Some metals such as copper, even zinc and lead are not at historically high stockpile levels, so I am expecting them to rise to and maintain reasonable prices in the near term.

You forgot lead. It has 17% of its LME stockpile cancelled and has been rising firmly in price during the week. http://www.kitcometals.com/charts/lead_historical.html
Lead was already suffering inventory-wise through Magellan's failure to get back on line, and the present number of mine closures appears to have now materially impacted the supply response.
Zinc is likely to be the next candidate, probably followed by nickel.
At this stage I am not sure where copper sits as its price has not fallen hard enough for larger producers to shut down. There are polymetallic mines that relied on copper and byproduct credits for profitability that will instead move to care and maintenance, or closure.

 

[GREENS]

However, you need to bear in mind that despite the US being in slumber mode for over a year, only nickel and aluminium stockpiles have returned to historical high levels.
Copper, lead and zinc have low stockpiles by historical standards.

What is most important to understand at this juncture is that circumstances are NOT normal. Many commodity prices have fallen below cost of production leading to a range of severe circumstances:
Exploration is cut back or stopped
Cut off grades are increased
Project economics are no longer favourable
Project financing is difficult
Expansion projects are delayed
Marginal producers are closing or going into care and maintenance.

The above circumstances may lead to inventory declines rather than rebuilds in the near to medium term. In the longer term it will mean that economic recovery will be met with severe shortages - and we know what happens thereafter.

Lead was already suffering inventory-wise through Magellan's failure to get back on line, and the present number of mine closures appears to have now materially impacted the supply response.
Zinc is likely to be the next candidate, probably followed by nickel.

Some very good and interesting points Red. I agree lead seems to be the most likely candidate to be the first cab of the rank, but I think zinc and nickel could be going head to head for the next movement. But untill we start to see a recovery in demand I dont suspect that prices will be spiking any time soon.

 

[sam76]

The Daily Reckoning Australia

--If you treat it as a thought experiment and ask yourself what would have to happen for the ASX to fall that much, you get some alarming possibilities. The liquidation of Oz Minerals? The dismemberment of Rio Tinto? The fall of a major investment bank or leveraged institution?

--Or perhaps it's something simpler: more falling prices for commodities. That's what the World Bank seems to think anyway. As reported in the FT, the World Bank's Global Economic Prospects report says the commodities boom has, "come to an end." It adds that, "Over the longer run, the price of extracted commodities should fall." It reckons slower population and income growth will contribute to slower resource demand growth.

--Naturally, this is diametrically opposed to the logic of the boom that began in 1999. Then, you had 200 years of falling real prices for tangible goods seemingly reverse itself, mostly because of growth in global population and per capita income. So which thesis is right?

--Well you know what we think. We think the Money Migration is the long-term transfer of the world's wealth from the debt-based consumption economies of the West to the world's savers and producers, roughly in the "East." This certainly favours Aussie resources for at least a generation.

--But the migration has been massively disrupted by the credit crisis, which is really just an epic attempt by the U.S. and other English-speaking economies to avoid their Day of Reckoning. But don't you worry. That day is coming. It's just taking longer than we originally thought. Ben Bernanke is a creative man. And he's desperate too.

--But why don't we ask China what it thinks? After all, it's a pretty important party to this discussion. China? What do you think? Hello China. Are you there?

--Hmm. China is not taking our calls. Maybe that's because some Chinese firms are too busy looking for ways to take advantage of the current situation by securing long-term supplies to resources at lower market prices. And maybe actions speak a lot louder than words about Chinese desire for Aussie resources.

--"Shenzhen Zhongjin Lingnan Nonfemet Co., China's fourth-biggest zinc producer by output, said it agreed to acquire a 50.1 percent stake in Australian miner Perilya Ltd. through a private placement," reports Bloomberg. And Forbes reports that Chinese steel-makers are set to push for a major reduction in iron ore prices to reflect the fall in global steel prices.

--The average price in October for a metric ton of iron ore fines, according to Forbes, was $US90.60. But Chinese steel makers reckon that with steel prices back at 1994 levels, iron ore prices should roll back to. In 1994, a metric ton of fines was US$20.40.

--A lot has changed since 1994. Supply of ore is up. Demand is up too. But costs for resource producers are way up too. It's unlikely the steel-makers are going to get a price cut that large. And if they do, it will put some smaller ore producers under enormous pressure (even harder to with stand if you don't have access to credit).

--Where are we then? A year ago BHP held the whip hand and chased Rio in a dream of grand ambition. Now BHP is reconsidering its strategy. Rio is reeling. And pricing power has switched back to resource consumers in China, who are eager to use the whip as well, it appears. There's been a lot of whipping going on, hasn't there? More on what it means tomorrow.

--Finally, yes. We too saw the reports circulating that the International Monetary Fund is getting ready to dump a bunch of gold on the market. So far, we haven't found anything to substantiate them. We're looking around, and will report back on what Diggers and Drillers editor Al Robinson digs up as well. Until then...

 

[Sean K]

Still major correction in long term bull to some.


Commodities "horribly" hit, not killed: Rogers
Thu Dec 11, 2008 5:09pm EST

NEW YORK (Reuters) - Jim Rogers, the famous investor and author on commodities, said on Thursday the credit crisis has not killed the bull market in commodities as many imagined, but just dealt it a "horrible setback".

 

[wayneL]

Still major correction in long term bull to some.


Commodities "horribly" hit, not killed: Rogers
Thu Dec 11, 2008 5:09pm EST

NEW YORK (Reuters) - Jim Rogers, the famous investor and author on commodities, said on Thursday the credit crisis has not killed the bull market in commodities as many imagined, but just dealt it a "horrible setback".

Jayzuz Jim,

Apart from Gold & Siver, I can't see any commodity at all that remains in any sort of long term bullish pattern.

Unless we include Treasuries which are in a rampant runaway bull market... but that suggests anything but a continuation of the commodity bull.

Endowment effect there methinks. I wonder how big a hit he's taken?

 

[Sean K]

His fund is off 40% from July I think.

Perhaps he has a vested interest in pumping commods. lol

And I wonder when his 'bull run' started? I thought we'd wiped all gains out since the bull kicked in. Perhaps just a false bull run start? Everyone back to the starting line please!

 

[sam76]

Chinese iron ore market 'recovering'

John Garnaut, Beijing
December 17, 2008
SINOSTEEL, China's biggest iron ore importer and trader, says the Chinese ore market is recovering and it wants to "accelerate" shipments from Australia.

The comments come as Rio Tinto and BHP Billiton prepare to start a new round of annual contract price negotiations with Baosteel.

"Obviously a lot of (iron ore) trading companies have suffered a lot in the past two months and many trading companies have already disappeared," said Sinosteel's Frank Feng, deputy general manager of iron ore imports and domestic sales.

"I think the market has now stabilised and will gradually become warmer. We have already returned to profitability."

more at...
http://business.theage.com.au/business/chinese-iron-ore-market-recovering-20081216-6zwi.html